In addition to rising unemployment, Sir Mervyn said the problems surrounding the eurozone countries would continue to affect the UK, adding that the "uncertainty" would have "some potential impact" on business investment and household spending.

"Since August, difficulties in Europe have continued to dominate. The worsening global problems, imbalances and less competitiveness remain," he said.

"The move towards a more balanced economy is going to be long and arduous."

But the governor added real take-home pay should slowly start to increase next year.

City analysts said that both lower growth and inflation forecasts showed the Bank would leave interest rates at the low level of 0.5% into 2013.

"The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed," said Vicky Redwood, chief UK economist at Capital Economics.

Eurozone funding

Regarding the current eurozone debt crisis, Sir Mervyn also gave support for the European Central Bank's (ECB) reluctance to bail out "deficit" countries in the eurozone, such as Italy and Spain, which are having growing difficulties borrowing from the private sector.

He said that the stronger eurozone governments needed to lend in a visible way to the weaker countries, rather than finance coming through the ECB.

BBC business editor Robert Peston said Sir Mervyn's comments may have killed off the idea that the ECB could become a so-called lender of last resort to governments experiencing funding difficulties.

"What the governor of the Bank of England has to say about the eurozone's crisis will resonate, simply because he is one of the big global figures in central banking," he said.